Funding in NBFC

Secure Funding Solutions for Your NBFC with Kanakkupillai's Expertise
Unlock unparalleled growth potential with our tailored financing options, crafted to provide the flexibility and support your business requires.
Leverage our expertise in navigating NBFC regulations, ensuring compliance and maximizing opportunities for your financial success.
Call us today and get a free consultation!

1,64,739 Happy Customers

Get Free Consultation

99.9% customers satisfaction guaranteed.
No Hidden charges

Overview of NBFC Funding

Non-banking financial Companies (NBFCs) play an important role in India's financial environment, offering a wide range of services to people and companies. Securing good enough investment is critical for NBFCs because it allows them to amplify their attainment, introduce competitive products, and maintain economic stability.

The importance of financing for NBFCs, the many sources of funding accessible, and the techniques for efficient fundraising are investigated in this guide. Funding helps NBFCs expand their loan portfolios, diversify their product lines, improve operational effectiveness, and increase financial resilience. Not just in terms of their expanding interlinkages with the banking sector but also in terms of their influence on the larger economy, NBFCs have grown ever more important as the Indian financial scene changes.

Having seen amazing expansion, the NBFC industry is now a major actor in the nation's financial scene. Many elements, including a growing middle class, improved financial inclusion, and sensible regulatory changes, drive this expansion. Playing a vital role in giving credit to the unorganized sector and small local borrowers, NBFCs have also become essential for all business services, including loans and credit facilities, retirement planning, money markets, underwriting, and merger operations.

Significance of Funding for NBFCs

Funding is the heart of Non-Banking Financial Companies (NBFCs), as it allows them to grow their reach, broaden their product offers, improve business efficiency, and keep financial security.

Expanding Lending Portfolio: Adequate funds help NBFCs to offer loans to a bigger group of customers, including those overlooked by standard banking institutions. This helps NBFCs respond to the various financial wants of people and companies across the country.
Diversifying Product Offerings: With access to investment, NBFCs can broaden and introduce new financial products and services, catering to the evolving needs of their target market. This diversification enhances their value proposition and strengthens their aggressive function.
Enhancing Operational Efficiency: Proper funding management helps NBFCs to simplify their processes, invest in technology, and improve customer service. This, in turn, improves the general speed and usefulness of their service offering.
Maintaining Financial Stability: Strong financial resilience and guaranteed long-term sustainability depend on stable and varied financing sources helping NBFCs withstand economic volatility and reduce liquidity concerns.

Sources of Funding in NBFC

Access to a wide spectrum of financing sources allows Non-Banking Financial Companies (NBFCs) to weigh their benefits and drawbacks. Among NBFCs' main sources of finance are:

1. Credit lines and bank loans:

Access to term loans, working capital loans, and lines of credit from banks helps NBFCs greatly finance themselves. These financing choices include reasonable rates of interest and flexible payback times.

2. Non-convertible debentures (NCDs):

Debt instruments called NCDs let NBFCs access money from the capital markets. Usually backed by the assets of the NBFC, they provide a specified rate of return.

3. Commercial Paper (CP):

NBFCs may employ short-term financial instruments called commercial paper to cover their working capital requirements. Usually provided at a discount and repaid at face value, CPs

4. Securitization:

Sales of a pool of NBFC assets to a special purpose vehicle (SPV), which then generates securities backed by these assets, constitute securitization. This gives NBFCs yet another stream of income.

5. External Commercial Borrowings (ECBS):

Loans taken out by ECBs come from overseas creditors include banks, financial companies, or foreign institutional investors. With this financing choice, NBFCs may access foreign capital markets and vary their funding sources.

6. Equity Financing:

NBFCs can also raise funds through the issue of stock shares, either through private deals or public offers. This form of financing improves the NBFC's cash base and offers long-term funding.

By tapping these diverse funding sources, NBFCs can expand their loan pools, broaden their product offers, improve business efficiency, and keep financial security.

Measuring and Effectiveness of Fundraising

Good non-banking financial company (NBFC) fundraising calls for a thorough strategy with regard to certain criteria and techniques. Some important factors to assess the success of fundraising consist of the following:

Cost of Funds:

Finding the most affordable financing mix for NBFCs depends on an analysis of the whole cost of several funding sources including interest rates, fees, and other related charges. NBFCs may improve their profitability and competitiveness by besting their cost of money.

The ratio of Debt to Equity:

Keeping financial stability and ensuring a balanced capital structure depend on monitoring the debt-to---equity ratio of the NBFC. A good debt-to-equity ratio shows how well the NBFC controls its leverage and weathers economic swings.

Management of liquidity:

The operating effectiveness of the NBFC depends on good liquidity management, which includes capacity to satisfy temporary needs and preserve a good cash flow. Through proactive management of their liquidity, NBFCs may guarantee continuous company operations and reduce financing gaps risk.

Funding Source Diversification:

Keeping a varied portfolio of financing sources can assist NBFCs reduce concentration concerns and improve their market-resistance. A combination of bank loans, capital market instruments, securitization, and other financing sources might constitute this diversity.

Investor Communications:

Strong ties between investors—existing and prospective—can help the NBFC get funds more easily and strengthen its market standing. Good investor connections may also let NBFCs get better terms and conditions for their financing requirements.

Closely tracking and improving these important indicators will help NBFCs guarantee the success of their fundraising initiatives, thereby supporting their expansion, preserving financial stability, and improving customer service.

Asset Liability Committees in Non-Bank Financial Companies (NBFCs)

For NBFCs, efficient management of finance and liquidity depends much on Asset Liability Committees (ALCOs). These panels handle:

ALCOs carefully check the liquidity situation of the NBFC to make sure it can satisfy both long-term and short-term needs.
ALCOs examine and control the NBFC's interest rate risk, therefore using techniques to minimize effects on its profitability.
Development and execution of the NBFC's financing and capital management policies falls within ALCOs, therefore guaranteeing a balanced and sustainable capital structure.
ALCOs create suitable risk-mitigating plans after spotting and evaluating many hazards, including operational, credit, and market risks.
ALCOs make sure the financing and liquidity management strategies of the NBFC follow pertinent legal rules and criteria.

Why Every NBFC Start-up Raises Foreign Funding?

Every NBFC company gets foreign funds for several key reasons:

Foreign investors provide cash at lower interest rates compared to domestic lenders, allowing NBFCs to grow their loan businesses and offer more competitive goods.
100% foreign investment is allowed under the default path in most NBFC operations without needing prior approval from the RBI or FIPB, making it an appealing funding choice.
Foreign funding helps NBFCs spread their funding sources, reducing concentration risks and improving their resiliency to market changes.
Overseas investors are keen on the Indian NBFC market due to the country's rising customer base and prospects for growth, further encouraging foreign investments.

Regulatory Framework for NBFC Funding

The legal system for NBFC funding in India includes the following:

100% foreign investment is allowed under the default path in most NBFC operations without prior RBI or FIPB approval, making foreign funding a desirable choice.
NBFCs will be grouped into four groups - base, middle, upper, and top - based on growth, activity, and risk under the scale-based regulatory system starting in October 2022.
Capital sufficiency rules state that NBFCs keep a minimum capital ratio of Tier I and Tier II capital, not less than 15% of their overall risk-weighted assets.
RBI has recommended a 'scale-based regulation' for the NBFC sector to build a strong and robust financial system, with regulation and control as a function of NBFC growth, activity and perceived riskiness.

Why Choose Kanakkupillai?

Kanakkupillai is a top source of complete funding solutions for NBFCs, giving a wide range of services and skills to support their growth and security. Some key reasons to choose Kanakkupillai include:

Having dealt with many customers in many sectors, Kanakkupillai is very aware of the NBFC industry.
Working closely with every NBFC, Kanakkupillai's team of specialists creates tailored finance plans that fit their particular requirements and goals.
Strong ties with a large network of financial institutions allow NBFCs to access a range of financing sources under Kanakkupillai.
Kanakkupillai helps NBFCs negotiate the challenging regulatory terrain by guaranteeing that the financing solutions it offers are compatible with the most recent legislative rules.
Personalized Advisory Services: Kanakkupillai's advisory services go beyond just capital, giving NBFCs strategy direction on asset-liability management, risk reduction, and operating efficiency.

Frequently Asked Questions

Are NBFC deposits safe like bank savings? +

No, NBFC deposits are not covered by deposit insurance, unlike bank savings, which are government-guaranteed up to a certain amount. The power of NBFCs to return savings depends on their financial health.

How are NBFCs regulated? +

NBFCs are controlled by the Reserve Bank of India (RBI) and other related agencies. They must stick to specific standards and keep capital safety levels to ensure security and client protection.

What kinds of funds do NBFCs depend on? +

NBFCs raise funds through different routes, including debt instruments (such as commercial papers and debentures), term loans from banks, stock capital, refinancing, and accepting term deposits from the public.

Why is capital significant for NBFCs? +

Adequate and various funding sources are crucial for the ongoing growth and security of NBFCs. Funding allows them to grow activities, enter new markets, and handle cash successfully.

Can NBFCs give loans and advances? +

Yes, NBFCs can provide loans, credit lines, and other financial services. However, they cannot accept demand accounts like regular banks². Instead, they rely on term bonds and other funding methods.